Lew says Fannie Mae payment helps delay debt limit until Labor Day

WASHINGTON -- A nearly $60-billion dividend payment to the government by taxpayer-owned Fannie Mae will help push off the effective date on which the U.S. would hit its debt limit until at least Labor Day, Treasury Secretary Jacob J. Lew said Friday.

But lawmakers still should raise the debt limit soon to avoid creating anxiety about a potential first-ever federal default, Lew told CNBC.

"People shouldn’t relax," Lew said in an interview in London, where he will be attending a Group of Seven meeting of finance ministers and central bankers. "Congress should deal with his right away."

Lew noted that the nation technically will hit its debt limit in just a few days, but improved government finances this year and Treasury accounting maneuvers would allow for continued borrowing for a while.

Fannie Mae, the bailed-out housing finance giant, said it would make a $59.4-billion dividend payment to government by June 30 after posting a record first-quarter profit. The company's fortunes, and that of sibling Freddie Mac, another huge bailout recipient, have improved with the housing market recovery.

"The one-time payment that Fannie Mae has announced makes it pretty clear we’re not going to hit the effective deadline until at least Labor Day," Lew said.

It was the first estimated date from Treasury in the latest battle over raising the debt limit. The date is consistent with a recent projection by the Bipartisan Policy Center that the U.S. would run out of borrowing authority between mid-August and mid-October.

The U.S. hit its $16.4-trillion debt limit at the end of last year. But Treasury was able to juggle the nation's finances through what it calls "extraordinary measures" to delay the effective default date until the White House and congressional Republican leaders agreed to put off the battle until later this year.

Congress suspended the debt limit through May 18. The next day, the limit automatically would be raised to the government's debt level at that time, which would be about $16.8 trillion.

The House this week began wrestling with the politically volatile issue again. Republicans pushed through a measure that would would require the Treasury to give bondholders and Social Security priority in receiving payments if the debt limit is breached.

The White House threatened to veto the bill. It said the debt limit simply should be raised because the nation needed to pay for bills it has already accrued and it was irresponsible to make contingency plans in case the limit was breached.

House Republicans will meet next week to discuss the conditions they want for agreeing to raise the limit, and could try to tie an increase to an overhaul of the tax code.

Lew said Friday that lawmakers shouldn't delay dealing with the issue just because they are months away from the effective deadline. A 2011 fight over raising the debt limit, which ended with a last-minute deal, triggered the first-ever downgrade of the U.S. credit rating and roiled financial markets.

"The uncertainty that’s created by putting this off is not good," he said.

"I don’t think that it’s in the interest of the U.S. or the world economy for Congress to wait until the last minute and create a sense of anxiety," he said. "Congress has to raise the debt limit"

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